State Street Private Cloud Geared to Make Money, CIO Says

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State Street is building a private cloud network that will allow its customers to host their data on the company’s computer systems, said State Street CIO Chris Perretta. The move is a key part of State Street’s effort to cut $600 million in costs and position itself for accelerated growth. Perretta said State Street expects to charge customers to run their own applications on the company’s cloud, providing a new revenue stream for the asset manager.

A leading provider of financial services and asset management for businesses and financial institutions, Boston-based State Street manages $2 trillion in financial assets and $22.4 trillion in assets under custody and administration. Since the 2008-2009 recession, many financial service providers have needed to rein in costs, and State Street is no exception. In 2009, Perretta and Chief Architect and Senior Vice President Kevin Sullivan put together a proposal to move away from software installed locally on PCs to a cloud–based system. The plan was designed to cut computing costs, improve operational efficiency and the security of its clients’ data.

State Street CIO Chris Perretta

Perretta and Sullivan took the plan to James Phelan, executive vice president and head of global operations, technology and product development. After a six-month review, it was approved by CEO Jay Hooley, as well as the company’s board of directors. Perretta, who manages 6,000 IT staffers among the company’s 30,000 employees, summed up his end goal in the transformation plan thusly: “We have to address business opportunities and operational inefficiencies and strategic issues within the tech organization to drive a business result.”

Sullivan said he’s transitioning from older Solaris and AIX-based servers to new Intel-based systems from H-P. He’s currently running 15,000 virtual Linux and Windows machines on the new servers, though he wasn’t sure how many physical machines were supporting the virtual machines.

Perretta declined to say how much money moving to this cloud would save State Street, though the comprehensive operations and IT overhaul announced in 2010 is expected to deliver “pre-tax, run-rate” savings of between $575 million to $625 million by the end of 2014. The savings are significant, but Perretta says he is most interested in how quickly and efficiently his staff can move legacy applications to the company’s cloud. “If every CIO in the country asked the CFO what they think about IT, they would say you spend too much money,” Perretta told CIO Journal. “If you ask everyone else in the business, it would be ‘go faster’.”

To craft its private cloud, State Street is gradually replacing older computer systems with smaller computers that were bought “bare metal,” which is industry parlance for computers that come without an operating system preloaded. State Street loaded Linux software on the computers, and Windows on others, and began migrating the company’s programs for business analytics, asset servicing and management to the cloud. Once on the cloud, the machines and applications are automated through open source virtualization software, said Sullivan. “We couldn’t turn on a dime the way we needed to, so we wanted to get the cloud platform built, then migrate old applications to cloud,” he said.

Core to this cloud is State Street’s custom-built data warehouse, which includes financial asset data that clients access through State Street’s web portal. The cloud also enables clients to connect their business intelligence software to State Street’s data warehouse, which means customers don’t have to build and host their own data warehouse, Sullivan said. This is one way State Street is ostensibly passing on its savings from moving to the cloud to its customers, Sullivan said. It also means State Street holds its customer data close at hand, allowing the company to improve its own asset servicing and management applications to better server customers’ needs, he said.

The move to the cloud poses challenges for State Street’s IT team. “Any large organization has a lot of moving parts, and it takes a long time to get 6,000 people on board and rolling it out,” Sullivan said. “Fortunately, we have a strong product management group.”

As State Street’s cloud becomes more complete and proves it can handle the computing workloads thrown at it, the company will begin to host its clients’ business analytics software and other programs on its own cloud. That move will put State Street in competition with Amazon Web Services, Microsoft Windows Azure, and other providers of cloud computing services. State Street will ostensibly become a private cloud computing provider, with the ability to host most of its clients’ core business applications.

But this is still a couple of years away, and neither Perretta nor Sullivan would say whether they plan to charge clients standard metered rates to host their applications on State Street’s cloud, or how much revenue they expect to generate for the business. “There are new revenue opportunities,” Perretta said. “We’re not ready to announce them but they are there.”

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I can feel the process happening at State Street becoming a case study in future. If it all works as proposed I can see it being shown to CIOs and IT departments which haven't taken advantage of the changes which cloud computing brings and are being marginalised. I have read so much about how CIOs need to make themselves valuable to the business as an income generator and facilitator rather than just a cost centre ( http://ow.ly/ctWQP ) but it is good to see a real world example. These options are not open to all CIOs so it is rewarding to see one who is taking the chance afforded him and not only making his own organisation more efficient but looking to make it money as well.

In this second article in a two-part series, Sonny Garg, senior vice president and chief information and innovation officer at Exelon Corp., the $27.4 billion competitive energy provider based in Chicago, describes the structure and inner workings of his emerging technologies team.